Dow for dummies: How the changing market affects you

Global stocks soared Friday and reversed the big losses they suffered just a day earlier. The Dow Jones Industrial Average rallied 746 points in the latest twist in a wild three months for markets.(Jan. 4)
AP

Specialist Matthew Greiner works at his post on the floor of the New York Stock Exchange, Friday, Dec. 28, 2018.(Photo: Richard Drew/AP)

Payrolls rose; tax rates fell. The stock market surged along, too, until the last three months of 2018, when the S&P 500 started dropping and finished the year down 6.2 percent.

It was the first stock market downturn in nearly a decade, said Ralph Giraud, a finance instructor at the Rutgers University School of Business in Camden. U.S. stock indexes rebounded Friday and continued Monday, but fears of a tumultuous year ahead have not dissipated.

“The general feeling is that the American economy will slow down from what we saw last year,” Giraud said. “Last year the economy benefited from tax cuts for corporations and individuals, and one of the big questions in the marketplace has been how long will the American economy keep that energy.”

For investors with 401(k) retirement savings plans, those concerns can be especially profound.

“There are some people who can stomach those kinds of losses, because they’re investing for a longer term, and there are a lot of people who will probably lose a lot of sleep at night,” Giraud said.

Why are investors nervous?

Trade negotiations with China are driving a lot of the jitters, Giraud said. If the two countries do not come to an agreement that is at least minimally satisfying to both parties, the price of goods and services will increase for both Americans and the Chinese and slow down both economies, he said. Corporate executives have also cited growing trade tensions, as well as a tight labor market, for driving their own pessimism.

Should you worry about your 401(k)?

Depends on your tolerance for risk. People close to retirement should look at their financial situations and perhaps be more conservative in their investments, Giraud said. For those whose retirement is far away, it’s best to ride it out. “Stocks go up and stocks go down, and people have to live with the fact that they go down. The longer the time you have to invest, the longer the time you have to recover from possible losses,” he said.

How do the Standard and Poor’s and Dow Jones indexes compare?

Dow Jones has more history, but S&P has more relevance. S&P is followed by more individual and professional investors, represents more industries and is a truer indicator of moves in the market, Giraud said. When a mutual fund advertises new stock investments, it compares them with the S&P 500.

What should you do with your 401(k) investments in 2019?

Check on them often. Giraud recommends reviewing your portfolio on a quarterly basis at a minimum and being in regular contact with your investment advisers and brokerage firms. “Don’t be afraid to pick up the phone and contact people who are holding your investments,” he said. When reviewing your investments, check whether the companies you’re invested with are doing businesses oversees, particularly China, Giraud said. An economic downturn abroad could mean a loss for them and a loss for you. "The beginning of the year is a time when people reevaluate things, and investments should certainly be on that list,” he said.